-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WM/9BJXirdeEhqdj1Y973frqUJNHp+fdEYB6N/JQ9tpAI+9ay1rBJM4+5UdADMXq MTza0Pg7KBrE7jmX/Ex1dg== 0000891554-00-001316.txt : 20000515 0000891554-00-001316.hdr.sgml : 20000515 ACCESSION NUMBER: 0000891554-00-001316 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUDSON TECHNOLOGIES INC /NY CENTRAL INDEX KEY: 0000925528 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MACHINERY, EQUIPMENT & SUPPLIES [5080] IRS NUMBER: 133641530 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 033-80270-NY FILM NUMBER: 629839 BUSINESS ADDRESS: STREET 1: 25 TORNE VALLEY RD CITY: HILLBURN STATE: NY ZIP: 10931 BUSINESS PHONE: 9143684990 MAIL ADDRESS: STREET 1: 25 THORNE VALLEY RD CITY: HILLBURN STATE: NY ZIP: 10931 FORMER COMPANY: FORMER CONFORMED NAME: REFRIGERANT RECLAMATION INDUSTRIES INC DATE OF NAME CHANGE: 19940617 10QSB 1 QUARTERLY REPORT ================================================================================ Securities and Exchange Commission Washington, D.C. 20549 Form 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number 1-13412 --------------------- Hudson Technologies, Inc. (Name of small business issuer as specified in its charter) New York 13-3641539 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 275 North Middletown Road Pearl River, New York 10965 (address of principal executive offices) (ZIP Code) Issuer's telephone number, including area code: (914) 735-6000 Check whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_|. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common stock, $0.01 par value 5,088,820 shares - ----------------------------- ---------------- Class Outstanding at April 7, 2000 ================================================================================ Hudson Technologies, Inc. Index Page Part I. Financial Information Number Item 1 - Consolidated Balance Sheets 3 - Consolidated Statements of Operations 4 - Consolidated Statements of Cash Flows 5 - Notes to the Consolidated Financial Statements 6 Item 2 - Management's Discussion and Analysis of Financial 9 Condition and Results of Operations Part II. Other information Item 1 - Legal Proceedings 13 Item 2 - Changes in Securities and Use of Proceeds 14 Item 6 - Exhibits and Reports on Form 8-K 14 Signatures 15 2 Part I - FINANCIAL INFORMATION Hudson Technologies, Inc. and subsidiaries Consolidated Balance Sheets (Amounts in thousands, except for share and par value amounts)
March 31, December 31, 2000 1999 -------- -------- (unaudited) Assets Current assets: Cash and cash equivalents $ 2,112 $ 2,483 Trade accounts receivable - net of allowance for doubtful accounts of $173 and $158 1,620 1,916 Inventories 2,262 2,480 Prepaid expenses and other current assets 228 203 -------- -------- Total current assets 6,222 7,082 Property, plant and equipment, less accumulated depreciation 5,689 5,785 Other assets 84 112 -------- -------- Total Assets $ 11,995 $ 12,979 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses $ 3,266 $ 3,375 Short-term debt 2,102 2,030 -------- -------- Total current liabilities 5,368 5,405 Deferred income 18 22 Long-term debt, less current maturities 1,967 2,065 -------- -------- Total Liabilities 7,353 7,492 -------- -------- Commitments and contingencies Stockholders' equity: Preferred stock shares authorized 5,000,000: Series A Convertible Preferred stock, $.01 par value ($100 liquidation preference value); shares authorized 75,000; issued and outstanding 69,712 and 67,314 6,971 6,731 Common stock, $0.01 par value; shares authorized 20,000,000; issued outstanding 5,088,820 and 5,085,820 51 51 Additional paid-in capital 21,381 21,614 Accumulated deficit (23,761) (22,909) -------- -------- Total Stockholders' Equity 4,642 5,487 -------- -------- Total Liabilities and Stockholders' Equity $ 11,995 $ 12,979 ======== ========
See accompanying Notes to the Consolidated Financial Statements. 3 Hudson Technologies, Inc. and subsidiaries Consolidated Statements of Operations (unaudited) (Amounts in thousands, except for share and per share amounts) Three month period ended March 31, 2000 1999 ----------- ----------- Revenues $ 3,084 $ 5,031 Cost of Sales 2,106 3,837 ----------- ----------- Gross Profit 978 1,194 ----------- ----------- Operating expenses: Selling and marketing 511 383 General and administrative 959 1,253 Depreciation and amortization 326 336 ----------- ----------- Total operating expenses 1,796 1,972 ----------- ----------- Operating loss (818) (778) ----------- ----------- Other income (expense): Interest expense (117) (102) Other income 83 24 ----------- ----------- Total other income (expense) (34) (78) ----------- ----------- Loss before income taxes (852) (856) Income taxes -- -- ----------- ----------- Net loss (852) (856) Preferred stock dividends (122) -- ----------- ----------- Available for common shareholders $ (974) $ (856) =========== =========== Net loss per common share - basic and diluted $ (0.19) $ (0.17) =========== =========== Weighted average number of shares outstanding 5,087,820 5,085,820 =========== =========== See accompanying Notes to the Consolidated Financial Statements. 4 Hudson Technologies, Inc. and subsidiaries Consolidated Statements of Cash Flows Increase (Decrease) in Cash and Cash Equivalents (unaudited) (Amounts in thousands) Three month period ended March 31, -------------------- 2000 1999 ------- ------- Cash flows from operating activities: Net loss $ (852) $ (856) Adjustments to reconcile net loss to cash provided (used) by operating activities: Depreciation and amortization 326 336 Allowance for doubtful accounts 15 32 Common stock issued for services 7 -- Changes in assets and liabilities: Trade accounts receivable 282 (566) Inventories 218 841 Prepaid and other current assets (25) (16) Other assets 5 77 Accounts payable and accrued expenses (109) 808 Deferred income (4) (8) ------- ------- Cash provided (used) by operating activities (137) 648 ------- ------- Cash flows from investing activities: Additions to property, plant, and equipment (207) (257) ------- ------- Cash used by investing activities (207) (257) ------- ------- Cash flows from financing activities: Proceeds from issuance of preferred stock - net -- 5,798 Proceeds (repayments) from short-term debt - net 60 (364) Proceeds from loans to stockholders -- 365 Proceeds from long-term debt 100 -- Repayment of long-term debt (187) (111) ------- ------- Cash provided (used) by financing activities (27) 5,688 ------- ------- Increase (decrease) in cash and cash equivalents (371) 6,079 Cash and equivalents at beginning of period 2,483 776 ------- ------- Cash and equivalents at end of period $ 2,112 $ 6,855 ======= ======= Supplemental disclosure of cash flow information: Cash paid during period for interest $ 117 $ 102 See accompanying Notes to the Consolidated Financial Statements 5 Hudson Technologies, Inc. and subsidiaries Notes to Consolidated Financial Statements General Hudson Technologies, Inc., incorporated under the laws of New York on January 11, 1991, together with its subsidiaries (collectively, "Hudson" or the "Company"), primarily sells refrigerants and provides RefrigerantSide(TM) Services performed at a customer's site, consisting of system decontamination to remove moisture, oils and other contaminants and recovery and reclamation of the refrigerants used in commercial air conditioning and refrigeration systems. The Company operates through its wholly owned subsidiary Hudson Technologies Company. Note 1- Summary of Significant Accounting Policies The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and with the instructions of Regulation S-B. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. The financial information included in the quarterly report should be read in conjunction with the Company's audited financial statements and related notes thereto for the year ended December 31, 1999. Operating results for the three month period ended March 31, 2000 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2000. In the opinion of management, all estimates and adjustments considered necessary for a fair presentation have been included and all such adjustments were normal and recurring. Consolidation The consolidated financial statements represent all companies of which Hudson directly or indirectly has majority ownership or otherwise controls. Significant intercompany accounts and transactions have been eliminated. The Company's consolidated financial statements include the accounts of wholly-owned subsidiaries Hudson Holdings, Inc. and Hudson Technologies Company. Effective March 19, 1999, the Company sold 75% of its ownership interest in Environmental Support Solutions, Inc. ("ESS") and as of that date, no longer includes the results of that operation in the consolidated results of the Company. Fair value of financial instruments The carrying values of financial instruments including trade accounts receivable, and accounts payable approximate fair value at March 31, 2000 and December 31, 1999, because of the relatively short maturity of these instruments. The carrying value of short-and long-term debt approximates fair value, based upon quoted market rates of similar debt issues, as of March 31, 2000 and December 31, 1999. Credit risk Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of temporary cash investments and trade accounts receivable. The Company maintains its temporary cash investments in highly-rated financial institutions. The Company's trade accounts receivables are due from companies throughout the U.S. The Company reviews each customer's credit history before extending credit. The Company establishes an allowance for doubtful accounts based on factors associated with the credit risk of specific accounts, historical trends, and other information. During the quarter ended March 31, 2000, no customer accounted for more than 10% of revenues. During the quarter ended March 31, 1999, one customer accounted for 23% and another customer accounted for 14%. The loss of a principal customer or a decline in the economic prospects and purchases of the Company's products or services by any such customer, as occurred in 2000, would have an adverse effect on the Company's financial position and results of operations. Cash and cash equivalents Temporary investments with original maturities of ninety days or less are included in cash and cash equivalents. 6 Inventories Inventories, consisting primarily of reclaimed refrigerant products available for sale, are stated at the lower of cost, on a first-in first-out basis, or market. Property, plant, and equipment Property, plant, and equipment are stated at cost; including internally manufactured equipment. The cost to complete equipment that is under construction is not considered to be material to the Company's financial position. Provision for depreciation is recorded (for financial reporting purposes) using the straight-line method over the useful lives of the respective assets. Leasehold improvements are amortized on a straight-line basis over the shorter of economic life or terms of the respective leases. Due to the specialized nature of the Company's business, it is possible that the Company's estimates of equipment useful life periods may change in the future. Revenues and cost of sales Revenues are recorded upon completion of service or product shipment or passage of title to customers in accordance with contractual terms. Cost of sales is recorded based on the cost of products shipped or services performed and related direct operating costs of the Company's facilities. Income taxes The Company utilizes the assets and liability method for recording deferred income taxes, which provides for the establishment of deferred tax asset or liability accounts based on the difference between tax and financial reporting bases of certain assets and liabilities. The Company recognized a reserve allowance against the deferred tax benefit for the current and prior period losses. The tax benefit associated with the Company's net operating loss carry forwards would be recognized to the extent that the Company recognized net income in future periods. Loss per common and equivalent shares Loss per common share, Basic, is calculated based on the net loss for the period less dividends on the outstanding Series A Preferred Stock, $122,000 for 2000, divided by the weighted average number of shares outstanding. If dilutive, common equivalent shares (common shares assuming exercise of options and warrants or conversion of Preferred Stock) utilizing the treasury stock method are considered in the presentation of dilutive earnings per share. Diluted loss per share was not presented since the effect was not dilutive. Estimates and Risks The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of certain assets and liabilities, the disclosure of contingent assets and liabilities, and the results of operations during the reporting period. Actual results could differ from these estimates. The Company participates in an industry that is highly regulated, changes in which could affect operating results. Currently the Company purchases virgin and reclaimable refrigerants from domestic suppliers and its customers. To the extent that the Company is unable to obtain refrigerants on commercially reasonable terms or experiences a decline in demand for refrigerants, the Company could realize reductions in refrigerant processing and possible loss of revenues, which would have a material adverse affect on operating results. The Company is subject to various legal proceedings. The Company assesses the merits and potential liability associated with each of these proceedings. The Company estimates potential liability, if any, related to these matters. To the extent that these estimates are not accurate, or circumstances change in the future, the Company could realize liabilities which would have a material adverse affect on operating results and its financial position. 7 Impairment of long-lived assets and long-lived assets to be disposed of The Company reviews for impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less the cost to sell. Note 2 -Stockholders Equity On March 30, 1999, the Company completed the sale of 65,000 shares of its Series A Preferred Stock, with a liquidation value of $100 per share, to Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. The gross proceeds from the sale of the Series A Preferred Stock was $6,500,000. The Series A Preferred Stock has voting rights on an as-if converted basis. The number of votes applicable to the Series A Preferred Stock is equal to the number of shares of Common Stock into which the Series A Preferred Stock is then convertible. However, the holders of the Series A Preferred Stock will provide the Chief Executive Officer and the Secretary of the Company a proxy to vote all shares currently owned and subsequently acquired above 29% of the votes entitled to be cast by all shareholders of the Company. The Preferred Stock carries a dividend rate of 7%, which will increase to 16%, if the stock remains outstanding, on the fifth anniversary date, and converts to Common Stock at a rate of $2.375 per share, which was 27% above the closing market price of Common Stock on March 29, 1999. The conversion rate is subject to certain antidilution provisions. The Company is using the net proceeds from the issuance of the Series A Preferred Stock to expand its RefrigerantSide(TM) Services and for working capital purposes. The Company pays dividends, in arrears, on the Series A Preferred Stock, semi annually, either in cash or additional shares, at the Company's option, during the first two years after which the dividends will be paid in cash. On March 30, 2000, the Company declared and paid, in-kind, the dividends of outstanding on the Series A Preferred Stock. The Company issued a total of 2,398 additional shares of its Series A Preferred Stock in satisfaction of the dividends due. The Company may redeem the Series A Preferred Stock on March 31, 2004 either in cash or shares of Common Stock valued at 90% of the average trading price of the Common Stock for the 30 days preceding March 31, 2004. In addition, after March 30, 2001, the Company may call the Series A Preferred Stock if the market price of the Common Stock is equal or greater than 250% of the conversion price and the Common Stock has traded with an average daily volume in excess of 20,000 shares for a period of thirty consecutive days. Note 3 - Sale of ESS Effective March 19, 1999, the Company sold 75% of its stock ownership in ESS to one of its founders. The consideration for the Company's sale of its interest was $100,000 in cash and a six year note in the amount of $380,000. The Company recognized a valuation allowance for 100% of the note receivable. The Company will recognize as income the portion of the proceeds associated with the note receivable upon the receipt of cash. This sale did not have a material effect on the Company's financial condition or results of operations. Effective October 11, 1999, the Company sold to three of ESS' employees an additional 5.4% ownership in ESS. The Company received $37,940 from the sale of the additional ESS stock. Effective April 18, 2000, the Company sold the balance of its stock ownership to one of ESS' founders. The Company received cash in the amount of $188,000 from the sale. 8 Hudson Technologies, Inc. and subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations Safe Harbor Statement Under The Private Securities Litigation Reform Act of 1995 Certain statements contained in this section and elsewhere in this Form 10-QSB constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve a number of known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, changes in the markets for refrigerants (including unfavorable market conditions adversely affecting the demand for, and the price of refrigerants), regulatory and economic factors, seasonality, competition, litigation, the nature of supplier or customer arrangements which become available to the Company in the future, adverse weather conditions, possible technological obsolescence of existing products and services, possible reduction in the carrying value of long-lived assets, estimates of the useful life of its assets, potential environmental liability, customer concentration and other risks detailed in the Company's other periodic reports filed with the Securities and Exchange Commission. The words "believe", "expect", "anticipate", "may", "plan", and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. Overview Sales of refrigerants continue to represent a significant portion of the Company's revenues. The Company believes that, in the industry overall, there will be a trend towards lower sales prices, volume and gross profit margins on refrigerant sales in the foreseeable future, which will continue to have an adverse effect on the Company's operating results. Historically, the Company has derived a majority of its revenues from the sale of refrigerants. The Company has changed its business focus towards service revenues through the development of a service offering known as RefrigerantSide(TM) Services. These services are offered in addition to the Company's traditional refrigerant management services, consisting principally of recovery and reclamation of refrigerants used in commercial air conditioning, industrial processing and refrigeration systems. Pursuant to this change in business focus, the Company has developed, and is currently implementing, a strategic business plan which provides for the creation of a network of service depots and the exiting of certain operations which may not support the growth of service sales. Consistent with its plan, the Company anticipates a reduction in refrigerant sales which were primarily targeted to the automotive aftermarket industry. In March 1999, the Company completed the sale of its Series A Preferred Stock and received net proceeds of $5,800,000. The net proceeds of the sale of the Company's Series A Preferred Stock are being used to expand the Company's service offering through a network of service depots that provide a full range of the Company's on site RefrigerantSide(TM) Services and to provide working capital. Management believes that its RefrigerantSide(TM) Services represent the Company's long term growth potential. However, while the Company believes it will experience an increase in revenues from its RefrigerantSide(TM) Services, in the short term, such an increase will not be sufficient to offset a substantial reduction in refrigerant revenue. The Company expects that it will incur additional expenses and losses during the year related to the continued development of its depot network. The change in business focus towards revenues generated from service may cause a material reduction in revenues derived from the sale of refrigerants. In addition, to the extent that the Company is unable to obtain refrigerants on commercially reasonable terms or experiences a decline in demand for refrigerants, the Company could realize reductions in refrigerant processing, and possible loss of revenues which would have a material adverse effect on its operating results. Results of Operations Three months ended March 31, 2000 as compared to the three months ended March 31, 1999 Revenues for the three months ended March 31, 2000 were $3,084,000, a decrease of $1,947,000 or 39% from the $5,031,000 reported during the comparable 1999 period. The decrease was attributable to a lower volume of refrigerant revenues and the lack of revenues from the Company's former subsidiary Environmental Support Solutions, Inc. ("ESS") which was sold during the first quarter of 1999, offset, in part, by an increase in RefrigerantSide(TM) Service revenues. The 9 reduction in refrigerant revenues related to a reduction of refrigerant sales to principal customers in the automotive aftermarket industry. The increase in RefrigerantSide(TM) Service revenues reflects growth through the development of the Company's depot network. Cost of sales for the three months ended March 31, 2000 were $2,106,000, a decrease of $1,731,000 or 45% from the $3,837,000 reported during the comparable 1999 period primarily due mainly to a lower volume of refrigerant revenues. As a percentage of sales, cost of sales were 68% of revenues for the three month period ended March 31, 2000, a decrease from the 76% reported for the comparable 1999 period. The decrease in cost of sales as a percentage of revenues was primarily attributable to the reduction of refrigerant revenues which were at lower gross profit margins. Operating expenses for the three months ended March 31, 2000 were $1,796,000, a decrease of $176,000 or 9% from the $1,972,000 reported during the comparable 1999 period. The decrease was primarily attributable to a decrease in professional fees, rental expense and the lack of operating expenses from ESS offset by an increase in selling costs. Other income (expense) for the three months ended March 31, 2000 was ($34,000), a decrease of $44,000 or 56% from the ($78,000) reported during the comparable 1999 period. Other income (expense) includes interest expense of $117,000 and $102,000 for 2000 and 1999, respectively, offset by other income of $83,000 and $24,000 for 2000 and 1999, respectively. The increase in interest expense is primarily attributed to an increase in borrowings during 2000 as compared to 1999. Other income primarily relates to lease rental income, interest income and proceeds from the sale of ESS. No income taxes for the three months ended March 31, 2000 and 1999 were recognized. The Company recognized a reserve allowance against the deferred tax benefit for the 2000 and 1999 losses. The tax benefits associated with the Company's net operating loss carry forwards would be recognized to the extent that the Company recognizes net income in future periods. Net loss for the three months ended March 31, 2000 was $852,000, as compared to net loss of $856,000 reported during the comparable 1999 period. The net change in the net loss for the 2000 period as compared to 1999 was primarily attributable to a lower volume of refrigerant sales offset by a reduction in operating expenses. Liquidity and Capital Resources At March 31, 2000, the Company had working capital of approximately $854,000, a decrease of $823,000 from the $1,677,000 at December 31, 1999. The reduction in working capital is primarily attributable to the net loss incurred during the quarter ended March 31, 2000. A principal component of current assets is inventory. At March 31, 2000, the Company had inventories of $2,262,000, a decrease of $218,000 or 9% from the $2,480,000 at December 31, 1999. The Company's ability to sell and replace its inventory and the prices at which it can be sold are subject, among other things, to current market conditions (See Seasonality and Fluctuations in Operating Results). The Company has historically financed its working capital requirements through cash flows from operations, the issuance of debt and equity securities, bank borrowings and loans from officers. Net cash used by operating activities for the three months ended March 31, 2000, was $137,000 compared with net cash provided by operating activities of $648,000 for the comparable 1999 period. Net cash used by operating activities was attributable mainly to the net loss for the 2000 period and a reduction in accounts payable and accrued expenses offset by the reduction of accounts receivable and inventories. Net cash used by investing activities for the three months ended March 31, 2000, was $207,000 compared with net cash used by investing activities of $257,000 for the prior comparable 1999 period. The net cash usage consisted of equipment additions associated with the expansion of the depot network. Net cash used by financing activities for the three months ended March 31, 2000, was $27,000 compared with net cash provided by financing activities of $5,688,000 for the comparable 1999 period. The net cash used by financing activities primarily consisted of repayment of long term debt for the 2000 period. At March 31, 2000, the Company had cash and equivalents of $2,112,000. During 1996, the Company mortgaged its property and building located in Ft. Lauderdale with Turnberry Savings Bank, NA. The mortgage of $656,000, at March 31, 2000, bears interest rate of 9.5% and is repayable over 20 years through January 2017. The Company has principally ceased its operations at this facility and has entered into a three year lease of 10 the entire facility at the current level of $13,125 per month to an unaffiliated third party. The Company intends to sell this property in the foreseeable future. The Company has entered into a credit facility with the CIT Group/Credit Finance, Inc. ("CIT") which provides for borrowings to the Company of up to $6,500,000. The facility requires minimum borrowings of $1,250,000. The facility provides for a revolving line of credit and a six-year term loan and expires in April 2001. Advances under the revolving line of credit are limited to (i) 80% of eligible trade accounts receivable and (ii) 50% of eligible inventory (which inventory amount shall not exceed 200% of eligible trade accounts receivable or $3,250,000). As of March 31, 2000, the Company had availability under its revolving line of credit of approximately $337,000. Advances available to the Company under the term loan are based on existing fixed asset valuations and future advances under the term loan up to an additional $1,000,000 are based on future capital expenditures. During 1999, the Company received advances of $166,000 based on capital expenditures. As of March 31, 2000, the Company had approximately $814,000 outstanding under its term loans and $1,560,000 outstanding under its revolving line of credit. The facility bears interest at the prime rate plus 1.5%, 10.5% at March 31, 2000, and substantially all of the Company's assets are pledged as collateral for obligations to CIT. In addition, among other things, the agreements restrict the Company's ability to declare or pay any dividends on its capital stock. The Company has obtained a waiver from CIT to permit the payment of dividends on its Series A Preferred Stock. Effective March 19, 1999, the Company sold 75% of its stock ownership in ESS to one of its founders. The consideration for the Company's sale of its interest was $100,000 in cash and a six year 6% interest bearing note in the amount of $380,000. The Company will recognize as income the portion of the proceeds associated with the note receivable upon the receipt of cash. This sale did not have a material effect on the Company's financial condition or results of operations. Effective October 11, 1999, the Company sold to three of ESS' employees an additional 5.4% ownership in ESS. The Company received $37,940 from the sale of this additional ESS stock. Effective April 18, 2000, the Company sold the balance of its stock ownership to one of ESS' founders. The Company received cash in the amount of $188,000 from the sale. The Company is continuing to evaluate opportunities to rationalize its other operating facilities based on its emphasis on the expansion of its service sales. As a result, the Company may discontinue certain operations which it believes do not support the growth of service sales and, in doing so, may incur future charges to exit certain operations. On March 30, 1999, the Company completed the sale of 65,000 shares of its Series A Preferred Stock, with a liquidation value of $100 per share, to Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. The gross proceeds from the sale of the Series A Preferred Stock was $6,500,000. The Series A Preferred Stock has voting rights on an as-if converted basis. The number of votes applicable to the Series A Preferred Stock is equal to the number of shares of Common Stock into which the Series A Preferred Stock is then convertible. However, the holders of the Series A Preferred Stock will provide the Chief Executive Officer and Secretary of the Company a proxy to vote all shares currently owned and subsequently acquired above 29% of the votes entitled to be cast by all shareholders of the Company. The Preferred Stock carries a dividend rate of 7%, which will increase to 16%, if the stock remains outstanding, on the fifth anniversary date, and converts to Common Stock at a rate of $2.375 per share, which was 27% above the closing market price of Common Stock on March 29, 1999. The conversion rate is subject to certain antidilution provisions. The Company is using the net proceeds from the issuance of the Series A Preferred Stock to expand its RefrigerantSide(TM) Services and for working capital purposes. The Company pays dividends, in arrears, on the Series A Preferred Stock, semi annually, either in cash or additional shares, at the Company's option, during the first two years after which the dividends will be paid in cash. On March 31, 2000, the Company declared and paid, in-kind, the dividends of outstanding on the Series A Preferred Stock. The Company issued a total of 2,398 additional shares of its Series A Preferred Stock in satisfaction of the dividends due. The Company may redeem the Series A Preferred Stock on March 31, 2004 either in cash or shares of Common Stock valued at 90% of the average trading price of the Common Stock for the 30 days preceding March 31, 2004. In addition, after March 30, 2001, the Company may call the Series A Preferred Stock if the market price of its Common Stock is equal or greater than 250% of the conversion price and the Common Stock has traded with an average daily volume in excess of 20,000 shares for a period of thirty consecutive days. The Company has provided certain registration, preemptive and tag along rights to the holders of the Series A Preferred Stock. The holders of the Series A Preferred Stock, voting as a separate class, have the right to elect up to two members to the Company's Board of Directors or at their option, to designate up to two advisors to the Company's Board of Directors who will have the right to attend and observe meetings of the Board of Directors. Currently, the holders have elected two members to the Board of Directors. 11 On March 30, 2000, the Company entered into an agreement with the New York State Energy Research and Development Authority ("NYSERDA") to jointly fund a research project designed to develop a system to improve the efficiency and performance and to increase system capacity of existing air-conditioning and refrigeration chiller systems. Pursuant to the agreement, NYSERDA will contribute up to $250,000 to the project. The Company currently believes that its anticipated cash flow from operations, together with the proceeds from the sale of its Preferred Stock, and its credit facility, will be sufficient to satisfy the Company's working capital requirements and proposed expansion and development of its service business for approximately the next twelve months. However, any unanticipated expenses or lack of expected revenues from the Company's depots or additional expansion or acquisition costs that may arise in the future would affect the Company's future capital needs. There can be no assurances that the Company's proposed or future plans will be successful, and as such, the Company may require additional capital sooner than anticipated. Reliance on Suppliers and Customers The Company's financial performance is in part dependent on its ability to obtain sufficient quantities of virgin and reclaimable refrigerants from manufacturers, wholesalers, distributors, bulk gas brokers, and from other sources within the air conditioning and refrigeration and automotive aftermarket industries, and on corresponding demand for refrigerants. To the extent that the Company is unable to obtain sufficient quantities of refrigerants in the future, or resell reclaimed refrigerants at a profit, the Company's financial condition and results of operations would be materially adversely affected. The loss of a principal customer would have a material adverse effect on the Company. During January 1997, the Company entered into agreements with DuPont to market DuPont's SUVA(TM) refrigerants. Under the agreement, 100% of virgin refrigerants provided to specified market segment customers must be purchased from DuPont. During the quarter ended March 31, 2000, no customer accounted for more than 10% of the Company's revenues. During the quarter ended March 31, 1999, two customers accounted for an aggregate of 47% of the Company's revenues. The loss of a principal customer or a decline in the economic prospects and purchases of the Company's products or services by any such customer, as occurred in 2000, would have a material adverse effect on the Company's financial position and results of operations. Seasonality and Fluctuations in Operating Results The Company's operating results vary from period to period as a result of weather conditions, requirements of potential customers, non-recurring refrigerant and service sales, availability and price of refrigerant products (virgin or reclaimable), changes in reclamation technology and regulations, timing in introduction and/or retrofit or replacement of CFC-based refrigeration equipment by domestic users of refrigerants, the rate of expansion of the Company's operations, and by other factors. The Company's business has historically been seasonal in nature with peak sales of refrigerants occurring in the first half of each year. Accordingly, the second half of the year results of operations have reflected additional losses due to a decrease in revenues. Delays in securing adequate supplies of refrigerants at peak demand periods, lack of refrigerant demand, increased expenses, declining refrigerant prices and a loss of a principal customer could result in significant losses. There can be no assurance that the foregoing factors will not occur and result in a material adverse effect on the Company's financial position and significant losses. 12 PART II - OTHER INFORMATION Item 1. Legal Proceedings During June 1995, United Water of New York Inc. ("United") alleged that it discovered that two of its wells within close proximity to the Company's Hillburn, New York facility showed elevated levels of refrigerant contamination, specifically Trichlorofluoromethane (R-11). During December 1997, United alleged that it discovered levels of Dichlorodifluoromethane (R-12) in two of its wells within close proximity to the Company's facility, and has alleged that the Company is the source. In January 1998, the Company agreed to install a remediation system at the Company's facility to remove any remaining R-11 levels in the groundwater under and around the Company's facility. In August 1998, the New York State Department of Environmental Conservation ("DEC") accepted the Company's proposal and requested that the Company proceed with the installation of the system. The cost of this remediation system was $100,000. In June 1998, United commenced an action against the Company in the Supreme Court of the State of New York, Rockland County, seeking damages in the amount of $1.2 million allegedly sustained as a result of the foregoing alleged contamination. In December 1998, United served an amended complaint asserting a claim pursuant to the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901, et. seq. ("RCRA") In January 1999, the Company filed a motion to dismiss the RCRA cause of action. On April 1, 1999, the Company reported a release at the Company's Hillburn, New York facility of what was ultimately determined to be approximately 7,800 lbs. of R-11, as a result of a failed hose connection to one of the Company's outdoor storage tanks allowing liquid R-11 to discharge from the tank into the concrete secondary containment area in which the subject tank was located. An amount of the R-11 escaped the secondary containment area through an open drain from the secondary containment area for removing accumulated rainwater and entered the ground. The Company immediately commenced excavation operations to remove contaminated soil and has taken a number of other steps to mitigate and minimize contamination, including acceleration of the installation of the planned remediation system. In April 1999, the Company was advised by United that one of its wells within close proximity to the Company's facility showed elevated levels of R-11 in excess of 200 ppb. and was taking certain steps and would be incurring costs in an attempt to remediate any contamination. In response to the release, the Company requested, and in May 1999, received permission from the DEC to operate the planned remediation system pending negotiation and finalization of a Consent Order covering the operation of the system. The remediation system was put into operation on May 7, 1999. The level of R-11 in the affected United well, after rising to a level of 785 ppb. in June 1999, have steadily decreased and on April 3, 2000 was 4.6 ppb. In December 1999, a second United well within close proximity to the Company's facility began showing elevated levels of R-11 in excess of 5 ppb. and increased to a high of 35 ppb. in March 2000. The Company continues to work with the DEC, United and with the Company's experts to determine the scope of any contamination, and to develop plans for the construction of a separate remediation system to directly treat contaminated water from United's well. In July 1999, United filed a motion seeking permission to amend its complaint in the action it commenced in June 1998 to allege facts relating to, and to seek damages allegedly resulting from the April 1, 1999 R-11 release. In August 1999, the Company entered into a stipulation accepting service of the amended complaint subject to the Company's pending motion to dismiss. On August 26, 1999, the Court issued a decision which granted the Company's motion to dismiss that portion of United's RCRA claims which seeks past cleanup costs, and held in abeyance a ruling whether United can assert a claim for present/future cleanup under RCRA until the date of trial. The Company continues to defend the claims asserted by United. The Company carries $1,000,000 of pollution liability insurance per occurrence and has put the insurance carrier on notice of the release and possible claims of United. There can be no assurance that this action, or any settlement thereof, will be resolved in a manner favorable to the Company, or that the ultimate outcome of any legal action or settlement, or the effects of the April 1, 1999 R-11 release, will not have a material adverse effect on the Company's financial condition and results of operations. The Company and its subsidiaries are subject to various other claims and/or lawsuits from both private and governmental parties arising from the ordinary course of business, none of which are material. 13 Item 2. Changes in Securities and Use of Proceeds During the three months ended March 31, 2000, the Company granted options to purchase 10,000 shares of common stock to certain employees pursuant to its 1997 Stock Option Plan and issued 3,000 shares of its common stock to an officer for services. On March 30, 2000, the Company issued a total of 2,398 additional shares of its Series A Preferred Stock to the holders thereof in satisfaction of the dividends then due. With respect to these grants and issuances, the Company relied on the exemption from registration provided by Section 4(2) under the Securities Act of 1933 as transactions by an issuer not involving a public offering. Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are attached to this report. Exhibit 27: Financial Data Schedule (for SEC use only) (b) No report on Form 8-K was filed during the quarter ended March 31, 2000. 14 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this Report to be signed in its behalf by the undersigned, thereunto duly authorized. HUDSON TECHNOLOGIES, INC. By: /s/ Kevin J. Zugibe May 12, 2000 --------------------------------------- Kevin J. Zugibe Date Chairman/President and Chief Executive Officer By: /s/ Brian F. Coleman May 12, 2000 --------------------------------------- Brian F. Coleman Date Vice President and Chief Financial Officer 15 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB AT MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-2000 MAR-31-2000 2,112,000 0 1,793,000 173,000 2,262,000 6,222,000 5,689,000 0 11,995,000 5,368,000 0 0 6,971,000 51,000 (2,380,000) 11,995,000 3,084,000 3,084,000 2,106,000 2,106,000 326,000 0 117,000 (852,000) 0 (852,000) 0 0 0 (852,000) (0.19) (0.19) Calculated after giving effect to Preferred Stock Dividends of $122,000
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